Periphery EGBs came off their lows......>

EGB SUMMARY: Periphery EGBs came off their lows and spreads narrowed over the

course of the afternoon, but remained much wider on the day amid continued

Italian political concerns and broader global geopolitical uncertainty.

- Italy 10-year BTP spreads over German Bunds had another volatile day, reaching

195.8bps this morning, up nearly 19bps, but came back to 190.7bps, up 13.8bps.

- Periphery spreads have come back down from the highs. Portugal and Spain

easily outperforming Italy, 10Y Bund spreads up 4.8bps and 4.0bps, respectively.

- Poor EMU macro data did little to lift sentiment. This morning, flash

composite PMIs at 18-month lows pointed to slowing growth in the eurozone in

Q218, and May consumer confidence data this afternoon was also weak.

- With such weak data, eurozone rates were bid. Euribor futures strip lagged the

global rates rally early on, but the long end has since surpassed the move in

Short Sterling and Eurodollars. Blue contracts are up by 7-8 ticks, Dec21 now at

99.24, set for the highest close since January.

- Against this backdrop, Bunds remain near their daily highs, having rocketed

higher this morning on risk aversion. Jun18 futures last up 76 ticks at 159.66.